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Carl Icahn Alleges Illumina Directors Obtained Extra Insurance for Grail Deal

DEF 14 Inc. March 26, 2023

Billionaire investor Carl Icahn is alleging that the directors of Illumina Inc., a biotechnology company, acquired additional insurance coverage to close the $7.1 billion acquisition of Grail Inc., a cancer detection company. Icahn claims that this was done to protect themselves in case the acquisition fails.

Illumina announced its intention to purchase Grail in 2020, with the deal closing in early 2021. Icahn, who owns approximately 8% of Illumina's shares, believes that the acquisition was a bad decision and is now urging the company to sell Grail.

In a letter to Illumina shareholders, Icahn accused the board of directors of Illumina of ignoring warning signs and moving forward with the deal despite concerns about Grail's financial viability. He pointed to the fact that Grail had never generated any revenue and was burning through cash, with a projected cash burn rate of $700 million per year.

Icahn also claimed that the directors of Illumina acquired additional insurance coverage in the form of a "tail policy," which would provide coverage for any potential legal claims that may arise from the Grail acquisition. This, according to Icahn, was done to protect themselves from the potential consequences of a disastrous deal.

A tail policy is a type of liability insurance that provides coverage for claims that may arise after a policy has expired or been cancelled. It is typically used in situations where there is a long tail of potential claims, such as in the case of mergers and acquisitions.

Icahn argues that the fact that the directors obtained this additional insurance coverage is a clear indication that they knew the acquisition was risky and potentially disastrous. He also pointed out that the insurance policy was obtained without shareholder approval, which he believes is a breach of fiduciary duty.

Illumina has responded to Icahn's allegations by stating that the additional insurance coverage was obtained as part of standard due diligence procedures for a merger and acquisition transaction of this size and complexity. The company also stated that the insurance coverage was fully disclosed in public filings.

However, Icahn maintains that the insurance coverage was not disclosed in a transparent manner and was buried in the footnotes of a filing. He is urging shareholders to vote against the reelection of two of Illumina's directors, Jay Flatley and Frances Arnold, at the upcoming annual meeting.

This is not the first time that Icahn has clashed with Illumina's management. In 2016, he successfully lobbied for the company to replace its CEO and several board members. Icahn has a long history of using his sizable shareholdings to push for changes at companies, with mixed results.

The Grail acquisition has been seen as a major bet by Illumina on the emerging field of liquid biopsy, which uses blood tests to detect cancer at an early stage. Grail is seen as a leader in this field, with the potential to revolutionize cancer diagnosis and treatment.

However, the acquisition has also been viewed as a significant risk, given Grail's lack of revenue and high burn rate. If the acquisition does not pan out as planned, it could have serious consequences for Illumina and its shareholders.

The outcome of this latest dispute between Icahn and Illumina remains to be seen. However, it underscores the risks and complexities involved in large-scale mergers and acquisitions, particularly in the biotechnology industry where success or failure can hinge on a single breakthrough discovery.

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